Penny wise pound foolish?

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India’s largest trading partner is China, with whom it has an annual trade of USD (US dollar) 71.28 bn and a trade deficit of USD 51.08 bn as per the 2016-17 financial year.

This deficit is allowed to continue in spite of the economic, geo strategic and military rivalry between the two powers.

Even with the recent ‘standoff’ and tensions there has been no serious talk from the Indian side of introducing any trade sanctions on Chinese goods.

Now contrast this with friendly Bhutan which has a huge (Indian Rupee) INR 23.23 bn or around USD 340 mn trade deficit with our largest trading partner India, in the 2016-2017 financial year, which is around 75 percent of our total INR 32 bn or USD 500 mn trade deficit, and is only growing.

Bhutan imported INR 67.36 bn worth of goods in 2016-17 and exported only INR 35.25 bn worth of goods in the same year. It is also a fact that around 83 percent of our trade is with India.

In the past this trade deficit has contributed to rupee shortages and other painful financial crises in Bhutan.

Bhutan, unlike China, does not have any rivalry or tension with India, and on the contrary, has stood by India through thick and thin as its closest ally.

Bhutan, of course, is not China and cannot match its industrial power and capacity; however, Bhutan does have its main export of hydro electricity to India. In the same 2016-2017 year out of our INR 35.25 bn in exports the main item was hydropower at INR 13.03 bn.

One would imagine given than Bhutan is a close ‘ally,’ India would go out of its way to ensure that this main export of Bhutan gets a fair price in the Indian market, so as to help reduce the enormous trade deficit and thereby help Bhutan.

However, on the ground, this does not seem to be the case with the recent reply from India’s Central Electricity Authority (CEA) (under the Power Ministry) not addressing Bhutan’s concerns over the Cross Border Trade in Electricity (CBTE) guidelines.

The Indian Power Ministry’s CBTE guidelines, issued ad-hoc in December 2016, without any consultations with Bhutan, has several clauses that disadvantages Bhutan’s hydro power sector in many ways However, the most unfair part of CBTE is a clear aim to artificially and unilaterally suppress Bhutan’s export electricity tariff rates to India for all times to come.

One of the clauses denies Bhutan access to India’s primary power market. This perhaps is inspired by the fear expressed by an Indian PSU in 2014 that it may lead to the ‘discovery of the real price of power’ from Bhutan.

Another clause, clearly designed to thwart Bhutan’s stated plans to create a domestic power trading company, for better leverage, is that India will only buy power from a foreign power trading companies with 51 percent Indian ownership !

There are other similar discriminatory and petty clauses.

At one level one could understand if Bhutan had a huge energy capacity and India was trying to protect its energy market. However, as of 2017, India has an installed capacity of around 330,000 MW compared to Bhutan’s miniscule 1,400 MW capacity which even by the year 2022 would only increase to 4,340 MW, by which time the Indian capacity would be even more.

Bhutan’s entire national hydropower ambitions and its main source of income would not even compare with half the capacity of a mid-sized private power generation company in India.

Bhutan’s power export rates to India are already the cheapest in the world.

Even in the recent talks between officials of the two countries to increase the tariff rates of the oldest 336 MW Chukha project after four years (as mandated in the original agreement), the Indian side was not receptive.

The hydro projects between India and Bhutan are not just economic projects but they are also ‘political projects’ representing the good will between the two countries.

However, Bhutan is increasingly concerned with the downward trend of these projects and ‘commitments’ even in the face of Bhutan’s steadfast support to India through all seasons.

A real friend is one who walks in when the rest of the world walks out.